Intrinsic value of Home Depot - HD

Previous Close

$182.25

  Intrinsic Value

$104.26

stock screener

  Rating & Target

sell

-43%

Previous close

$182.25

 
Intrinsic value

$104.26

 
Up/down potential

-43%

 
Rating

sell

We calculate the intrinsic value of HD stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 214.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  6.86
  6.20
  6.08
  5.97
  5.87
  5.79
  5.71
  5.64
  5.57
  5.52
  5.46
  5.42
  5.38
  5.34
  5.31
  5.27
  5.25
  5.22
  5.20
  5.18
  5.16
  5.15
  5.13
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
Revenue, $m
  94,595
  100,460
  106,568
  112,932
  119,567
  126,486
  133,707
  141,245
  149,118
  157,344
  165,943
  174,934
  184,340
  194,181
  204,483
  215,268
  226,564
  238,396
  250,792
  263,784
  277,401
  291,675
  306,642
  322,336
  338,796
  356,060
  374,170
  393,169
  413,101
  434,016
  455,962
Variable operating expenses, $m
 
  73,122
  77,555
  82,174
  86,989
  92,011
  97,252
  102,723
  108,437
  114,408
  120,648
  126,965
  133,791
  140,934
  148,411
  156,239
  164,437
  173,024
  182,022
  191,451
  201,334
  211,694
  222,557
  233,948
  245,894
  258,424
  271,568
  285,357
  299,824
  315,003
  330,931
Fixed operating expenses, $m
 
  12,931
  13,255
  13,586
  13,926
  14,274
  14,631
  14,996
  15,371
  15,756
  16,150
  16,553
  16,967
  17,391
  17,826
  18,272
  18,729
  19,197
  19,677
  20,169
  20,673
  21,190
  21,719
  22,262
  22,819
  23,389
  23,974
  24,573
  25,188
  25,817
  26,463
Total operating expenses, $m
  81,168
  86,053
  90,810
  95,760
  100,915
  106,285
  111,883
  117,719
  123,808
  130,164
  136,798
  143,518
  150,758
  158,325
  166,237
  174,511
  183,166
  192,221
  201,699
  211,620
  222,007
  232,884
  244,276
  256,210
  268,713
  281,813
  295,542
  309,930
  325,012
  340,820
  357,394
Operating income, $m
  13,427
  14,407
  15,758
  17,172
  18,652
  20,201
  21,824
  23,525
  25,309
  27,181
  29,145
  31,416
  33,581
  35,856
  38,246
  40,758
  43,398
  46,174
  49,094
  52,164
  55,394
  58,791
  62,366
  66,126
  70,083
  74,247
  78,628
  83,238
  88,090
  93,195
  98,568
EBITDA, $m
  15,400
  16,535
  18,003
  19,538
  21,144
  22,826
  24,587
  26,432
  28,367
  30,395
  32,523
  34,757
  37,102
  39,564
  42,151
  44,869
  47,725
  50,727
  53,883
  57,202
  60,692
  64,362
  68,222
  72,282
  76,554
  81,047
  85,774
  90,747
  95,979
  101,484
  107,276
Interest expense (income), $m
  924
  916
  968
  1,064
  1,165
  1,269
  1,378
  1,492
  1,611
  1,735
  1,865
  2,000
  2,142
  2,291
  2,446
  2,608
  2,778
  2,956
  3,143
  3,338
  3,543
  3,758
  3,983
  4,219
  4,467
  4,726
  4,998
  5,284
  5,584
  5,898
  6,228
Earnings before tax, $m
  12,491
  13,490
  14,790
  16,108
  17,487
  18,932
  20,446
  22,033
  23,698
  25,446
  27,280
  29,415
  31,439
  33,565
  35,800
  38,149
  40,620
  43,218
  45,951
  48,826
  51,851
  55,033
  58,383
  61,907
  65,617
  69,521
  73,630
  77,954
  82,506
  87,297
  92,340
Tax expense, $m
  4,534
  3,642
  3,993
  4,349
  4,722
  5,112
  5,520
  5,949
  6,399
  6,870
  7,366
  7,942
  8,488
  9,063
  9,666
  10,300
  10,967
  11,669
  12,407
  13,183
  14,000
  14,859
  15,763
  16,715
  17,716
  18,771
  19,880
  21,048
  22,277
  23,570
  24,932
Net income, $m
  7,957
  9,848
  10,797
  11,759
  12,766
  13,820
  14,925
  16,084
  17,300
  18,575
  19,914
  21,473
  22,950
  24,503
  26,134
  27,849
  29,652
  31,549
  33,544
  35,643
  37,851
  40,174
  42,619
  45,192
  47,900
  50,750
  53,750
  56,907
  60,229
  63,727
  67,408

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,538
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  42,966
  42,932
  45,542
  48,262
  51,097
  54,054
  57,140
  60,361
  63,726
  67,241
  70,916
  74,758
  78,778
  82,984
  87,386
  91,995
  96,822
  101,878
  107,176
  112,728
  118,547
  124,648
  131,044
  137,751
  144,785
  152,162
  159,902
  168,021
  176,539
  185,477
  194,856
Adjusted assets (=assets-cash), $m
  40,428
  42,932
  45,542
  48,262
  51,097
  54,054
  57,140
  60,361
  63,726
  67,241
  70,916
  74,758
  78,778
  82,984
  87,386
  91,995
  96,822
  101,878
  107,176
  112,728
  118,547
  124,648
  131,044
  137,751
  144,785
  152,162
  159,902
  168,021
  176,539
  185,477
  194,856
Revenue / Adjusted assets
  2.340
  2.340
  2.340
  2.340
  2.340
  2.340
  2.340
  2.340
  2.340
  2.340
  2.340
  2.340
  2.340
  2.340
  2.340
  2.340
  2.340
  2.340
  2.340
  2.340
  2.340
  2.340
  2.340
  2.340
  2.340
  2.340
  2.340
  2.340
  2.340
  2.340
  2.340
Average production assets, $m
  22,053
  23,407
  24,830
  26,313
  27,859
  29,471
  31,154
  32,910
  34,744
  36,661
  38,665
  40,760
  42,951
  45,244
  47,644
  50,158
  52,789
  55,546
  58,435
  61,462
  64,634
  67,960
  71,448
  75,104
  78,939
  82,962
  87,182
  91,608
  96,253
  101,126
  106,239
Working capital, $m
  3,591
  2,411
  2,558
  2,710
  2,870
  3,036
  3,209
  3,390
  3,579
  3,776
  3,983
  4,198
  4,424
  4,660
  4,908
  5,166
  5,438
  5,721
  6,019
  6,331
  6,658
  7,000
  7,359
  7,736
  8,131
  8,545
  8,980
  9,436
  9,914
  10,416
  10,943
Total debt, $m
  23,601
  23,606
  25,956
  28,403
  30,955
  33,617
  36,394
  39,293
  42,321
  45,485
  48,792
  52,250
  55,868
  59,653
  63,615
  67,763
  72,108
  76,659
  81,427
  86,423
  91,661
  97,151
  102,907
  108,944
  115,274
  121,914
  128,880
  136,187
  143,853
  151,897
  160,338
Total liabilities, $m
  38,633
  38,638
  40,988
  43,435
  45,987
  48,649
  51,426
  54,325
  57,353
  60,517
  63,824
  67,282
  70,900
  74,685
  78,647
  82,795
  87,140
  91,691
  96,459
  101,455
  106,693
  112,183
  117,939
  123,976
  130,306
  136,946
  143,912
  151,219
  158,885
  166,929
  175,370
Total equity, $m
  4,333
  4,293
  4,554
  4,826
  5,110
  5,405
  5,714
  6,036
  6,373
  6,724
  7,092
  7,476
  7,878
  8,298
  8,739
  9,199
  9,682
  10,188
  10,718
  11,273
  11,855
  12,465
  13,104
  13,775
  14,478
  15,216
  15,990
  16,802
  17,654
  18,548
  19,486
Total liabilities and equity, $m
  42,966
  42,931
  45,542
  48,261
  51,097
  54,054
  57,140
  60,361
  63,726
  67,241
  70,916
  74,758
  78,778
  82,983
  87,386
  91,994
  96,822
  101,879
  107,177
  112,728
  118,548
  124,648
  131,043
  137,751
  144,784
  152,162
  159,902
  168,021
  176,539
  185,477
  194,856
Debt-to-equity ratio
  5.447
  5.500
  5.700
  5.890
  6.060
  6.220
  6.370
  6.510
  6.640
  6.760
  6.880
  6.990
  7.090
  7.190
  7.280
  7.370
  7.450
  7.520
  7.600
  7.670
  7.730
  7.790
  7.850
  7.910
  7.960
  8.010
  8.060
  8.110
  8.150
  8.190
  8.230
Adjusted equity ratio
  0.062
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  7,957
  9,848
  10,797
  11,759
  12,766
  13,820
  14,925
  16,084
  17,300
  18,575
  19,914
  21,473
  22,950
  24,503
  26,134
  27,849
  29,652
  31,549
  33,544
  35,643
  37,851
  40,174
  42,619
  45,192
  47,900
  50,750
  53,750
  56,907
  60,229
  63,727
  67,408
Depreciation, amort., depletion, $m
  1,973
  2,128
  2,245
  2,366
  2,493
  2,625
  2,763
  2,907
  3,057
  3,214
  3,379
  3,341
  3,521
  3,709
  3,905
  4,111
  4,327
  4,553
  4,790
  5,038
  5,298
  5,571
  5,856
  6,156
  6,470
  6,800
  7,146
  7,509
  7,890
  8,289
  8,708
Funds from operations, $m
  9,486
  11,976
  13,042
  14,125
  15,258
  16,445
  17,688
  18,991
  20,357
  21,790
  23,293
  24,814
  26,471
  28,211
  30,039
  31,960
  33,979
  36,102
  38,334
  40,681
  43,149
  45,745
  48,476
  51,348
  54,371
  57,550
  60,896
  64,415
  68,119
  72,016
  76,116
Change in working capital, $m
  -297
  141
  147
  153
  159
  166
  173
  181
  189
  197
  206
  216
  226
  236
  247
  259
  271
  284
  298
  312
  327
  343
  359
  377
  395
  414
  435
  456
  478
  502
  527
Cash from operations, $m
  9,783
  11,835
  12,895
  13,972
  15,099
  16,279
  17,515
  18,810
  20,168
  21,592
  23,086
  24,598
  26,245
  27,975
  29,792
  31,701
  33,708
  35,818
  38,036
  40,369
  42,822
  45,402
  48,116
  50,972
  53,976
  57,136
  60,461
  63,960
  67,641
  71,514
  75,589
Maintenance CAPEX, $m
  0
  -1,808
  -1,919
  -2,035
  -2,157
  -2,284
  -2,416
  -2,554
  -2,698
  -2,848
  -3,005
  -3,169
  -3,341
  -3,521
  -3,709
  -3,905
  -4,111
  -4,327
  -4,553
  -4,790
  -5,038
  -5,298
  -5,571
  -5,856
  -6,156
  -6,470
  -6,800
  -7,146
  -7,509
  -7,890
  -8,289
New CAPEX, $m
  -1,621
  -1,355
  -1,423
  -1,483
  -1,546
  -1,612
  -1,682
  -1,756
  -1,834
  -1,917
  -2,003
  -2,095
  -2,191
  -2,293
  -2,400
  -2,513
  -2,632
  -2,757
  -2,888
  -3,027
  -3,173
  -3,326
  -3,487
  -3,657
  -3,835
  -4,023
  -4,220
  -4,427
  -4,644
  -4,873
  -5,113
Cash from investing activities, $m
  -1,583
  -3,163
  -3,342
  -3,518
  -3,703
  -3,896
  -4,098
  -4,310
  -4,532
  -4,765
  -5,008
  -5,264
  -5,532
  -5,814
  -6,109
  -6,418
  -6,743
  -7,084
  -7,441
  -7,817
  -8,211
  -8,624
  -9,058
  -9,513
  -9,991
  -10,493
  -11,020
  -11,573
  -12,153
  -12,763
  -13,402
Free cash flow, $m
  8,200
  8,673
  9,553
  10,454
  11,397
  12,383
  13,417
  14,500
  15,636
  16,828
  18,078
  19,334
  20,713
  22,161
  23,683
  25,283
  26,965
  28,734
  30,595
  32,552
  34,611
  36,778
  39,059
  41,459
  43,984
  46,643
  49,441
  52,387
  55,487
  58,751
  62,187
Issuance/(repayment) of debt, $m
  2,274
  1,257
  2,349
  2,448
  2,552
  2,661
  2,777
  2,899
  3,028
  3,164
  3,307
  3,458
  3,617
  3,785
  3,962
  4,148
  4,344
  4,551
  4,768
  4,997
  5,237
  5,490
  5,756
  6,036
  6,331
  6,640
  6,965
  7,307
  7,666
  8,044
  8,441
Issuance/(repurchase) of shares, $m
  -6,662
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -4,466
  1,257
  2,349
  2,448
  2,552
  2,661
  2,777
  2,899
  3,028
  3,164
  3,307
  3,458
  3,617
  3,785
  3,962
  4,148
  4,344
  4,551
  4,768
  4,997
  5,237
  5,490
  5,756
  6,036
  6,331
  6,640
  6,965
  7,307
  7,666
  8,044
  8,441
Total cash flow (excl. dividends), $m
  3,726
  9,930
  11,902
  12,902
  13,948
  15,045
  16,194
  17,399
  18,664
  19,991
  21,385
  22,792
  24,330
  25,946
  27,645
  29,431
  31,310
  33,285
  35,363
  37,549
  39,849
  42,269
  44,815
  47,495
  50,315
  53,283
  56,407
  59,694
  63,154
  66,795
  70,628
Retained Cash Flow (-), $m
  1,983
  -1,246
  -261
  -272
  -284
  -296
  -309
  -322
  -336
  -352
  -367
  -384
  -402
  -421
  -440
  -461
  -483
  -506
  -530
  -555
  -582
  -610
  -640
  -671
  -703
  -738
  -774
  -812
  -852
  -894
  -938
Prev. year cash balance distribution, $m
 
  1,286
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  9,970
  11,641
  12,630
  13,665
  14,749
  15,886
  17,077
  18,328
  19,640
  21,018
  22,408
  23,928
  25,526
  27,205
  28,970
  30,827
  32,779
  34,833
  36,994
  39,267
  41,659
  44,175
  46,824
  49,612
  52,545
  55,633
  58,882
  62,302
  65,902
  69,690
Discount rate, %
 
  7.80
  8.19
  8.60
  9.03
  9.48
  9.95
  10.45
  10.98
  11.52
  12.10
  12.71
  13.34
  14.01
  14.71
  15.44
  16.22
  17.03
  17.88
  18.77
  19.71
  20.70
  21.73
  22.82
  23.96
  25.16
  26.41
  27.73
  29.12
  30.58
  32.11
PV of cash for distribution, $m
 
  9,249
  9,946
  9,861
  9,670
  9,377
  8,989
  8,515
  7,967
  7,359
  6,707
  6,012
  5,325
  4,643
  3,984
  3,361
  2,784
  2,263
  1,804
  1,408
  1,075
  802
  584
  414
  286
  192
  126
  79
  49
  29
  16
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

The Home Depot, Inc. (The Home Depot) is a home improvement retailer. The Company sells an assortment of building materials, home improvement products, and lawn and garden products, and provides various services. The Home Depot stores serves three primary customer groups: do-it-yourself (DIY) customers, do-it-for-me (DIFM) customers and professional customers. Its DIY customers are home owners purchasing products and completing their own projects and installations. The Company assists these customers with specific product and installation questions both in its stores and through online resources and other media designed to provide product and project knowledge. Its DIFM customers are home owners purchasing materials themselves and hiring third parties to complete the project or installation. Professional Customers are primarily professional renovators/remodelers, general contractors, repairmen, installers, small business owners and tradesmen.

FINANCIAL RATIOS  of  Home Depot (HD)

Valuation Ratios
P/E Ratio 27.6
Price to Sales 2.3
Price to Book 50.6
Price to Tangible Book
Price to Cash Flow 22.4
Price to Free Cash Flow 26.9
Growth Rates
Sales Growth Rate 6.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 7.9%
Cap. Spend. - 3 Yr. Gr. Rate 3.1%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 515.8%
Total Debt to Equity 544.7%
Interest Coverage 15
Management Effectiveness
Return On Assets 20.1%
Ret/ On Assets - 3 Yr. Avg. 18.5%
Return On Total Capital 28.7%
Ret/ On T. Cap. - 3 Yr. Avg. 26.1%
Return On Equity 149.4%
Return On Equity - 3 Yr. Avg. 99.1%
Asset Turnover 2.2
Profitability Ratios
Gross Margin 34.2%
Gross Margin - 3 Yr. Avg. 34.2%
EBITDA Margin 16.3%
EBITDA Margin - 3 Yr. Avg. 15.6%
Operating Margin 14.2%
Oper. Margin - 3 Yr. Avg. 13.4%
Pre-Tax Margin 13.2%
Pre-Tax Margin - 3 Yr. Avg. 12.5%
Net Profit Margin 8.4%
Net Profit Margin - 3 Yr. Avg. 8%
Effective Tax Rate 36.3%
Eff/ Tax Rate - 3 Yr. Avg. 36.4%
Payout Ratio 42.8%

HD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HD stock intrinsic value calculation we used $94595 million for the last fiscal year's total revenue generated by Home Depot. The default revenue input number comes from 2017 income statement of Home Depot. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our HD stock valuation model: a) initial revenue growth rate of 6.2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 7.8%, whose default value for HD is calculated based on our internal credit rating of Home Depot, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Home Depot.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of HD stock the variable cost ratio is equal to 72.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $12616 million in the base year in the intrinsic value calculation for HD stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.1% for Home Depot.

Corporate tax rate of 27% is the nominal tax rate for Home Depot. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the HD stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for HD are equal to 23.3%.

Life of production assets of 12.2 years is the average useful life of capital assets used in Home Depot operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for HD is equal to 2.4%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $4333 million for Home Depot - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 1178.79 million for Home Depot is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Home Depot at the current share price and the inputted number of shares is $214.8 billion.

RELATED COMPANIES Price Int.Val. Rating
LOW Lowe's 85.54 69.67  hold
SHOS Sears Hometown 1.75 2.98  str.buy

COMPANY NEWS

▶ Home Depot Stock Beats Apple in This Key Investor Metric   [Dec-12-17 09:23AM  Motley Fool]
▶ Dow Jones Closes at Record High as Tech, Energy Soar   [Dec-11-17 06:07PM  Investing.com]
▶ [$$] Hispanic Entrepreneurs Need Tax Reform   [12:27AM  The Wall Street Journal]
▶ Home Depot Gives Investors a $15 Billion Christmas Gift   [Dec-10-17 03:03PM  Motley Fool]
▶ Will 2018 Be Home Depot Inc's Best Year Yet?   [Dec-08-17 07:24PM  Motley Fool]
▶ Why Retail Stocks Are Loving the GOP Tax Plan   [Dec-07-17 07:32PM  Motley Fool]
▶ 10 Stocks That Outperform in December   [01:00PM  Investopedia]
▶ Gift cards fueling opioid crisis   [07:00AM  CNBC Videos]
▶ Retail winners and losers: 3 buys   [05:00PM  CNBC Videos]
▶ Market Open: December 06, 2017   [09:58AM  CNBC Videos]
▶ Home Depot sets $15 bln buyback   [09:43AM  Reuters Videos]
▶ [$$] Home Depot to Launch $15 Billion Share Buyback   [07:07AM  The Wall Street Journal]
▶ Passive investing driving Dow? 4 trades   [05:00PM  CNBC Videos]
▶ What to Expect From Home Depot Inc. in 2018   [Nov-29-17 01:18PM  Motley Fool]
▶ Home Depot: $200, Here We Come?   [09:58AM  Barrons.com]
▶ How Safe Is Lowe's (LOW) Dividend?   [09:00AM  Motley Fool]
Financial statements of HD
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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